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This article was originally published in The Gray Sheet

Executive Summary

BAXTER DIALYSIS EQUIPMENT DUTY FREE STATUS: APPEAL BY CUSTOMS Service must be filed by April 5, according to the Chicago law firm of Katten Muchin & Zavis, attorneys for Baxter. Under a recent order by Judge Thomas Aquilino of the U.S. Court of International Trade, the U.S. Customs Service must refund duties Baxter paid to import dialysis equipment during 1985, 1986 and 1988. Aquilino ruled that "each of [Baxter's] kidney dialysis devices at issue in the case [is]...entitled to entry free of duty," since the court has determined that the equipment is used by handicapped persons and is not therapeutic in nature. Baxter filed suit against Customs in August 1989 after Customs denied an administrative petition seeking an exemption from duties for dialysis equipment imported during 1985, 1986 and 1988. The case centers around the Educational, Scientific and Cultural Materials Importation Act of 1982, which enabled the U.S. to implement a trade agreement known as the Nairobi Protocol. The protocol provides for duty-free status for "articles specially designed or adapted for the use or benefit of the blind or other physically or mentally handicapped persons," according to Aquilino's opinion. However, the duty exemption, which was implemented in the U.S. in 1988, does not apply to products that also are considered to be "therapeutic." In its argument for duty-free status, Baxter maintained that persons with end-stage renal disease fall under the law's definition of physically or mentally handicapped individuals. The firm also contended that its equipment, which is imported from Japan and Spain, could not be considered "therapeutic" because it does not have a "curative purpose." Customs did not dispute Baxter's claim that patients with renal failure are handicapped. However, it contested the firm's claim that the devices are not therapeutic. Baxter's argument relied heavily on a precedent case in 1990 in which Richards Medical was granted duty-free status for hip prostheses after the Court of International Trade concluded that the devices were not therapeutic. The court said that "it is necessary to establish a healing and curative purpose of a particular medical procedure in order to qualify it as therapeutic." Baxter maintained that dialysis, like hip replacement, is non- curative because it "does not treat the kidney," nor does it "restore kidney function of a person with" end-stage renal failure. Customs countered that "accepting [Baxter's] application of the tariff terms 'therapeutic article' would leave the terms meaningless, as no imported merchandise could fit its definition" (emphasis Customs'). Aquilino concluded that "while at the trial of this case, there was also general agreement among the witnesses that kidney dialysis is life-sustaining, the court finds from the evidence adduced that that process is not curative." The case, which was tried in July 1991, was designated a test case by both parties. Therefore, if Customs does not pursue an appeal, it can apply the decision to other pending cases involving Baxter dialysis equipment shipments, eliminating the need for the cases to go to trial. According to Katten Muchin & Zavis, there are several other pending cases involving the application of the Nairobi Protocol to medical devices. For example, Erika, Inc. is pursuing duty-free status for dialysis equipment. In addition, Nobelpharma U.S. and Widex Hearing Aid have filed cases for hearing aid parts, while Telectronics has filed cases for pacer leads, programmers and simulators.

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